Brokers seek clarity on payout freezes

Brokers have approached the Securities and Exchange Board of India (Sebi) to seek clarity on the process of withholding payouts in cases involving alleged fraudulent transactions or unauthorised trading. The move comes after a recent incident in which market infrastructure institutions (MIIs), including the National Stock Exchange (NSE), withheld fund payouts worth around **Rs 78 crore** after getting a police alert related to a complaint about breach of risk management protocols and unauthorised trading in a client account.

The issue has impacted over **160 brokers** and more than **3,000 clients**. According to sources, the police received the complaint on **May 5**, following which they directed an immediate halt to the settlement of trades executed that day.

Discussions are now underway to include provisions in the **Securities Markets Code (SMC) Bill** to address such instances, said a person familiar with the matter. The SMC Bill has been referred to Parliament’s Standing Committee on Finance.

Brokers Seek Clear Timeline for Resolution

Brokerages seek a clear timeline for resolution in such cases. They have also recommended granting MIIs greater powers to independently assess and act on such matters, rather than relying solely on the pace of investigations by external enforcement agencies.

A specific timeframe should be prescribed to either continue blocking or release the funds, depending on the merits of the case, according to another source. There have been several instances where crores of rupees have remained stuck for decades in investor grievance matters because of pending police complaints.

MIIs have both the data and market understanding to take more informed decisions in such situations. The **National Stock Exchange (NSE)** said payouts to certain clients who were counterparties to the alleged fraudulent transactions in the equity derivatives segment had been withheld and that the matter was being investigated by enforcement authorities.

Concerns Over Proportionality

The legal concern here is proportionality. While a freeze may protect complainants and preserve disputed proceeds, it can also penalise innocent parties, said a source. Sebi did not respond to requests for comment on the matter.

In a notice dated **May 6**, NSE said the payouts were withheld in accordance with standard operating procedures (SOPs). The exchange is working to resolve the issue as soon as possible.

The incident has highlighted the need for clear guidelines on the process of withholding payouts in cases involving alleged fraudulent transactions or unauthorised trading. Brokers are hoping for a swift resolution to the issue to avoid any further disruptions to their business.

The **Securities and Exchange Board of India (Sebi)** is yet to respond to the brokers’ concerns.
The **National Stock Exchange (NSE)** has withheld payouts worth around **Rs 78 crore** in the incident.
Over **160 brokers** and more than **3,000 clients** have been impacted by the issue.

The matter is being closely watched by the industry, and a resolution is expected soon. The **Securities Markets Code (SMC) Bill** is currently being reviewed by Parliament’s Standing Committee on Finance.